IMF plans for bank tax panned by global finance community

Unprecedented proposals for a banks’ tax have been dealt a severe blow by
advisers, banking representatives, and academics.

Accountancy experts warned that the International Monetary Fund’s (IMF) plan
to create a levy and tax on profits and remuneration would be almost impossible
to enforce, and cause a tug of war between tax agencies for control of the
funds.

To compound the situation, they believe there would be an increase in tax
avoidance, at best, and evasion at worst.

The global nature of the banking industry means transactions can be conducted
from virtually any location and, unless every country in the world signed up to
the tax and implemented identical policies, it would drive business to the
locations that had not endorsed the move, advisers said.

Michel Taly, an adviser at French firm Arsene Taxand and a former manager in
the tax legislation department of the French finance ministry, said the levy
would be a sales tax, not an income tax, and this would cause huge
implementation problems in banking and insurance operations.

Understanding where responsibility for a transaction originates is not always
clear cut, which could create uncertainty over who was responsible to pay the
tax.

“When you are dealing with money and not goods, it’s very hard to say who is
selling what,” said Taly. “For instance, when a bank does foreign exchange
between euros and dollars, does that constitute a sale or a purchase? Would you
have to tax twice on both sides of the transaction?”

Academics agreed that there would be a spike in tax planning and called for
the IMF to clarify the terms if the money it was trying to generate for future
bailouts wasn’t to fall through the cracks.

“All [the IMF] is doing is outlining, but it needs to clarify how this will
work. There are any number of off balance-sheet activities that can easily be
located in foreign jurisdictions,” said Mike Devereux, director of Oxford
University’s Said Centre for Business Taxation. “It is almost inevitable that
there will be an increase in banks looking to arrange their tax affairs in the
most efficient way possible.”

The level of multilateral co-operation necessary to agree a workable tax
system would be unprecedented, Devereux added.

Taly said: “The game among the companies affected will be how to avoid the
tax.”

There has already been a backlash against the IMF’s plans. The world’s 80
largest insurance groups have written to the G20 group of nations to protest at
their industry’s inclusion in proposals for a global financial services tax.

The G20 has also called for the IMF to go back to the drawing board and flesh
out its proposals, while banking representatives also voiced concerns on the
collection issues and the degree of multilateral co-operation needed for the
proposals to work.

“There could be a territorial issue for collecting the money and everybody
around the world would have to sign up for it,” a BBA spokeswoman said.
“The UK must not be put at a competitive disadvantage. Clearly there are some
countries who are less inclined to do this and you risk creating little tax
havens,” she added.

Policymakers and tax collectors are reserving judgment on the feasibility
issue of the IMF’s plan.

Because of the upcoming election, the Treasury said it was not in a position
to comment on government policy, while HMRC said it could only comment when
government policy had been introduced into law.

IN OUR VIEW

The IMF has the best intentions at heart, but its plan is clearly flawed.
Perhaps the body should call on the detractors to consult on how the plan could
be made watertight so no institution sidesteps the levy or the tax on profits
and pay.

Further reading:

imf.org